Mortgage Extinguishment: Supreme Court Upholds High Court Decision in Gowramma vs. Kalingappa (2019)

Date of the Judgment: 08 February 2019
Citation: (2019) INSC 123
Judges: L. Nageswara Rao, J. and M. R. Shah, J.

Can a mortgage be considered extinguished if the mortgagee receives the mortgage amount and possession is handed over, even without a formal endorsement on the mortgage deed? The Supreme Court of India addressed this question in a recent case, focusing on the interpretation of Section 60 of the Transfer of Property Act, 1882. This judgment clarifies the circumstances under which a mortgage can be deemed extinguished by the actions of the parties involved, even without a formal registration. The bench comprised of Justice L. Nageswara Rao and Justice M. R. Shah, with the judgment authored by Justice M.R. Shah.

Case Background

The case revolves around a property originally mortgaged by Smt. Gowramma and another (the Appellants) to one Bangarasetty on 3rd October 1980 for a sum of Rs. 3,000 for a period of five years. Bangarasetty was given possession of the land. Subsequently, on 26th April 1982, the Appellants entered into an agreement to sell the same property to Kalingappa (the Respondent’s father) for Rs. 6,000. Kalingappa then filed a suit for specific performance of this agreement. Meanwhile, Bangarasetty assigned the mortgage to N.S. Sundarasetty, who also took possession of the land. The Court of Munsiff and Additional JMFC, Nanjangud, decreed the suit for specific performance in favour of Kalingappa on 3rd August 1984, directing the Appellants to execute the sale deed upon receiving Rs. 1,000 and also directing the mortgagee to return the mortgage deed and handover the land on receiving the mortgage amount. Kalingappa later filed an execution petition which was dismissed as not pressed on 28th June 1997. However, Kalingappa paid Rs. 3,000 to Sundarasetty and took possession of the land.

Timeline

Course of Proceedings

In 2002, the Appellants filed a suit (OS No. 45 of 2002) in the Court of Principal Civil Judge (Jr. Division), Nanjangud, seeking redemption of the mortgage, possession, and mesne profits against the original mortgagee and Kalingappa. Kalingappa stated in his written statement that he had taken over the property by redeeming the mortgage as per the 1984 decree. The trial court partly decreed the suit for redemption on 18th March 2004, directing Kalingappa to hand over possession to the Appellants upon receiving Rs. 3,000. This decision was upheld by the first appellate court on 15th July 2008. However, the High Court of Karnataka, in RSA No. 2092 of 2008, allowed Kalingappa’s appeal on 1st July 2011, relying on Section 60 of the Transfer of Property Act, 1882, and dismissed the suit for redemption, stating that the mortgage was extinguished by the actions of the parties. The original plaintiffs then appealed to the Supreme Court.

Legal Framework

The primary legal provision in question is Section 60 of the Transfer of Property Act, 1882, which deals with the right of a mortgagor to redeem a mortgage. The section states:

“At any time after the principal money has become due, the mortgagor has a right, on payment or tender, at a proper time and place, of the mortgage-money, to require the mortgagee (a) to deliver to the mortgagor the mortgage-deed and all documents relating to the mortgaged property which are in the possession or power of the mortgagee, (b) where the mortgagee is in possession of the mortgaged property, to deliver possession thereof to the mortgagor, and (c) at the cost of the mortgagor either to re-transfer the mortgaged property to him or to such third person as he may direct, or to execute and (where the mortgage has been effected by a registered instrument) to have registered an acknowledgement in writing that the right has been extinguished: Provided that the right conferred by this section has not been extinguished by the act of the parties or by decree of a court.”

This section provides the mortgagor the right to redeem the property. However, the proviso to Section 60 of the Transfer of Property Act, 1882, specifies that this right can be extinguished by the act of the parties or by a decree of the court. The High Court relied on this proviso to conclude that the mortgage was extinguished when Kalingappa paid the mortgage amount to Sundarasetty and took possession of the property.

Arguments

Arguments by the Appellants (Original Plaintiffs):

• The Appellants argued that under Section 60 of the Transfer of Property Act, 1882, a mortgage is only extinguished when a “Shera” (endorsement) is written on the mortgage deed, or when there is a written and registered acknowledgment that the mortgage is extinguished. Since this was not done, the mortgage was not legally redeemed, and the lower courts had rightly decreed the suit for redemption.
• They contended that while Kalingappa had a decree for specific performance, he did not execute it, and his execution petition was dismissed. Therefore, his rights under that decree were extinguished, and the mortgagor’s right to redeem the mortgage was revived.

Arguments by the Respondents (Legal Heirs of Kalingappa):

• The Respondents argued that the High Court correctly interpreted the proviso to Section 60 of the Transfer of Property Act, 1882. They stated that when Kalingappa paid the mortgage amount of Rs. 3,000 to Sundarasetty and took possession of the property, the mortgage was extinguished by the act of the parties.
• They supported the High Court’s decision to dismiss the suit for redemption, arguing that the mortgage was no longer valid.

Innovativeness of the Argument: The Appellants’ argument that a formal endorsement or registered acknowledgment is necessary for mortgage extinguishment, while rooted in a literal reading of the first part of Section 60 of the Transfer of Property Act, 1882, was innovative in its attempt to circumvent the proviso. The Respondents’ argument was more straightforward, relying on the proviso’s provision that the act of the parties can extinguish the mortgage.

Issues Framed by the Supreme Court

The primary issue before the Supreme Court was:

1. Whether the High Court was correct in holding that the mortgage was extinguished by the act of the parties, specifically, by the mortgagee assignee receiving the mortgage amount and handing over possession to Kalingappa, despite the absence of a formal endorsement on the mortgage deed or a registered acknowledgment of extinguishment?

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Court primarily relied on the interpretation of Section 60 of the Transfer of Property Act, 1882, and its proviso. The Court observed that the mortgagor’s right to redeem is not absolute and can be extinguished by the act of the parties or by a decree of the court. The Court did not cite any other cases or books.

Judgment

How each authority was viewed by the Court?

• The Court interpreted Section 60 of the Transfer of Property Act, 1882 to mean that while the mortgagor has the right to redeem, this right can be extinguished by the act of the parties. The Court held that the payment of the mortgage amount and the transfer of possession were sufficient to extinguish the mortgage under the proviso of the said section.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the proviso to Section 60 of the Transfer of Property Act, 1882, which allows for the extinguishment of a mortgage by the act of the parties. The Court emphasized the factual scenario where Kalingappa paid the mortgage amount to the mortgagee assignee, Sundarasetty, and was given possession of the land. This act, according to the Court, demonstrated a clear intention to extinguish the mortgage, irrespective of the lack of a formal endorsement or registered acknowledgment. The Court also considered the fact that Kalingappa’s rights under the specific performance decree had been extinguished, making the issue purely one of mortgage redemption.

The court’s reasoning was a blend of factual analysis and legal interpretation, with a higher emphasis on the factual circumstances of the case.

The Court rejected the argument that a formal endorsement on the mortgage deed or a registered acknowledgment was necessary for extinguishment. The Court stated, “the mortgage is extinguished by the act of the parties, i.e. on Sundarasetty – mortgagee assignee receiving Rs.3,000/- being the mortgage amount from Kalingappa and by putting him in possession…”. It further clarified, “Considering Section 60 of the TP Act, mortgagor has a right to redeem the mortgage as provided under first part of Section 60 of the TP Act, however, provided the right conferred in favour of mortgagor has not been extinguished by act of the parties or by decree of the Court, as per Proviso to Section 60 of the TP Act.” The Court also noted that, “In the present case, by act of the parties, i.e. on Sundarasetty – mortgagee assignee receiving Rs.3,000/- being the mortgage amount from Kalingappa and by putting him in possession, as rightly observed by the High Court, the mortgage is extinguished…”. There was no dissenting opinion.

Key Takeaways

• A mortgage can be extinguished by the act of the parties, specifically through the payment of the mortgage amount and the transfer of possession, without the need for a formal endorsement on the mortgage deed or a registered acknowledgment.
• The proviso to Section 60 of the Transfer of Property Act, 1882, plays a crucial role in determining the extinguishment of mortgage rights.
• Mortgagors should ensure that they obtain formal documentation when redeeming a mortgage, but the lack of such documentation does not always invalidate the extinguishment if the acts of the parties clearly indicate such an intention.

Directions

No specific directions were given by the Supreme Court in this case.

Development of Law

The ratio decidendi of this case is that a mortgage can be extinguished by the act of the parties, specifically through the payment of the mortgage amount and the transfer of possession, without the need for a formal endorsement on the mortgage deed or a registered acknowledgment. This clarifies the interpretation of the proviso to Section 60 of the Transfer of Property Act, 1882. There is no change in the previous position of law, rather, it is an interpretation of the law.

Conclusion

The Supreme Court upheld the High Court’s decision, ruling that the mortgage was indeed extinguished by the actions of the parties. The payment of the mortgage amount by Kalingappa to Sundarasetty and the subsequent transfer of possession were deemed sufficient to extinguish the mortgage, despite the absence of a formal endorsement or registered acknowledgment. This judgment emphasizes the importance of the proviso to Section 60 of the Transfer of Property Act, 1882, and highlights that the actions of the parties can have legal consequences, even without formal documentation.